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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and am Marie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the
Bloomberg Terminal and the Bloomberg Business app. This is a view on Wall Street this morning, Keith Thurner of Truist, writing, the weight of the evidence continues to suggest that the bullmarket deserves the benefit of the doubt, and we would view weakness as an opportunity. Keith joins us now for more. Keith, Welcome to the program. I've got two wives. Why do you believe the bullmarket deserves the benefit of the doubt. Why do you think that a weakness is an opportunity?
Yeah?
Well, great to be with you all. Well, the first thing is, I think the bullmarket has earned it. This bullmarket has been battle tested through a series of shocks from high inflation to fast paced interest rates, and each time these companies have adapted and we're seeing profit margins continue to expand, and we're seeing ford earning estimates at new highs, not only in the SMP, but also by the by midcaps, small caps, and even emerging markets as well.
So I don't want to be Polyannis either, Jonathan. I think there is someone serting to We just had, you know, a nice rally off the low, so it would be perfectly normal to see some backing and filling after this. But the last point is we also know. I think there's so much focus on Iran and the situation there, which is important, but let's not lose sight of the dominant theme of this bull market, which you all talked about, is AI and tech, and that story is likely not changing.
In some ways, it looks like it's actually accelerated.
Okay, sixteen days Lisa mentioned it, sixteen days of gains for the Philadelphia Semi Conductor Index, a powerful rally. One of the best months we've seen, by the way, and about twenty five is for that particular index. Keith, when you look at those moves, and when I look at
where we bottomed. Do you think we still underappreciate the relationship between this rally and say mythos and anthropic and perhaps we're looking too much towards the escalation and what's been developing in the Middle East.
Yeah, I do, And you know we were when we were selling off in masks, we were highlighting the technology that you know, the valuations got to a twenty pe, which was lower than the terror shock of last year, and the premium relatives of the markets shrunk to the lowest level in over a decade.
And one thing we just looked at, Johathan, I thought it was really interested.
We looked at the peak to trough change in the valuation or the compression of the valuation for the tech sector.
You know, over the last several months it was thirty seven percent. We went from a thirty two pe to our twenty.
When we look back to this decade, that's the most severe compression we've seen out of any of the pullbacks, more than COVID, more than the terror shock. And you can argue that there was actually more usertanty in some of these other areas as well. So I think we've reset pretty well. Is momentum by far as the strongest in the market. The forward earning estimates are being revised higher over the last three months by almost twenty percent.
That's about double vSMP, So I think all in all, kind of this tech story moved to the back burner.
Now it's moving.
Towards the front, the forefront again and again after this big move, are we going to be able?
Are we going to pull back a little bit? Maybe? But the last point on.
Tech is it just it just moved above the October high. So since the October high, we're up point point two percent. So ultimately I think this bull market and tech has further to go.
We're in tech though, Keith, and this is a big question mark underpinning this rally, given the fact that right now the picks and shovels of tech seem to be rallying. We're seeing the semiconductors, we're seeing the memory chips, we're
seeing the energy side of things. To eve Vernova with respect to some of the way that they're electrifying some of the data centers going forward, do you think that next week is going to be a gut check in terms of how the market responds to additional Kapex plans.
Likely will be.
But I also think, you know, as long as these earning estimates continue to get revised higher, I think the market will be okay if cap X continues to be.
At a rapid pace.
I don't think anyone's really expecting much of a pullback in CAPEX. But really, what's got the market's attention more recently is is a lack of availability for GPUs and as we as these models are becoming more powerful, that the demand for that will only grow. So listen, I don't think we're going to see a big change in
the CAPEX story. I think in some ways, what we're seeing more recently in the power of these models is going to validate the expansion of that CAPEX I think more interesting and we'll see what we're we gonna hear about the employment side, because we're actually starting to see a tick up in some of those announcements.
As far as displacement, how.
Do you treat that as an investor?
I mean, I know that from a psychological perspective, that has a pretty big hit, and we're seeing that take place even in places like China. Some of the anecdotal information suggests that there's a real cramp down on employment as a result of AI. Is that a good thing as an investor because it reduces costs?
Yeah, you know.
Longer term it is somewhat circular, because we do need people ding to move the economy forward. But I think there's different time frames on this, and I think in the short term, if you see profit margins continue to move up and you're seeing the sales per employee or cashflow for per.
Employee move up, I think ultimately the market will will ward that.
Now, again, there's probably the greatest story to be told from an economics store perspective, and we all know that. But I think in the near term, the market is going to focus on profits.
Hey, Keiate, that's the focus right now, that's for sure. Thank you, sir, Keith Lender. There of trust, stay with us. More Bloomberg surveillance coming up after this. Victoria Coach, the former deputy National security advisor to President Trump. Right in the following they runs to sustained such systematic damage that they really can't recover. Time is entirely on the President's side. Victoria joins us.
Now for more.
Victoria, welcome to the program. We call this at the top of the program, our high stakes. Blinking contest is around willing to risk regime collapse, and it's the US willing to continue to maximize put maximum pressure, certain maximum pressure on the Iranians and take the economic consequences that the global economy might have to take.
Well, good morning, Jonathan.
I have to be careful what I write on my x feed because I never know what you're going to read back to me.
But I stand by that. I stand by that comment.
I think that you know, as we dive deeper into what's happening in the Iranian economy.
And also the other piece.
Of this is the fact that since they haven't been able to get product out of the Gulf since the blockade began, they're starting to fill up their storage on carg Island, and they're going to wind up at a point in a matter of days. They might have a week or two weeks, but I think it's a shorter period where they're going to have to start thinking about capping wells, and that's not a good thing. That could really do permanent damage to their oil reserves, and they
have the second largest oil reserves on the planet. It's one of their great strengths that's going to be a decision point for them. So I do think that the pressure that is building on the Iranians. I mean, they have to restart their economy. They need to turn their internet back on, their stock market back on, but most of all, they need to start being able to get
product to market. So if that these days go by, they're going to have to make that existential decision you describe and make a choice between economic collapse and potentially preserving the regime.
Victoria.
Do have confidence that this is a logical kind of regime in Iran that the United States is dealing with in the matter of financial collapse being enough of a threat to really bring them to the table. And I ask this because so many people have come on this show and said their goal is simply survival.
Well, I would never call them rational, Alicia. I think that they are right now very cornered. You've had the decimation of the forty top leaders in the first day of this action against them, and so they're still trying to recover from that.
Nobody knows where the supreme leader is.
He's been Supreme Leader much Tabak Kamani for more than a month and he hasn't even published a video greeting the Iranian people. You know, famously he was a cardboard cutout at the announcement of his appointment, So you know, this is not in any way a stable, normal functioning government. They also can't communicate their worried that these railays are in their cell phones, probably for pretty good reason, and so they're passing notes back and forth, and that's part
of the delay in the negotiations. You know, the president wants to make sure he has somebody with the authority to make those decisions at the table, and it's not clear that person has emerged yet.
One difficulty, and one reason why a number of strategists have been really pessimistic, is they don't see a way, a path to an end that leaves the straight of removes open free trade and commerce going through that and the current regime in place. How do you see this playing out in a way that brings the straight up, removes back to sort of the free flow of commerce that we were familiar with a couple months ago.
Well, I don't think we're going to return to the sort of business as usual in Iran. I don't think there's a universe in which the regime can reconstitute itself as it was right, I would go back really to early December of last year and the kind of control it was able to exert over its people.
And this will be a very fluid period.
And I know that's that's disruptive and concerning for a lot of folks. But at the same time, you know, the other thing that's happening to them is they stop being able to pay the salaries of their security apparatus, the IRGC, the Islamic Islamic Revolutionary Guard Core. That's the key to their being able to control the country physically, is it's stopped paying it's its people, and their police
are stopped being paid as well. So that's going to create more disruption within Iran as the people of Iran realize that what's kept them down, the people who carried out that horrible massacre in January, maybe aren't as loyal as they were at that time because quite simple, they're not being paid. So I agree this is this is
going to be very fluid. We're going to have something different on the other side, and hopefully with the strength of the United States, it's that if that weakened entity is not able to assemble the same kind of power the old government of Iran was. You know, we'll be able to establish that control you're talking about over the street and ensure the free patch of the passage of shipping victory.
Just to final question, just briefly, if you can, you've worked with the President on high profile foreign policy issues. There is a comfort in this market right now that the President is committed to de escalation. In your mind, what would it take to return to hostilities.
I would take a provocative app action by the Iranians. I mean President Trump has wanted that as the last resort from the beginning. He has offered diplomacy repeatedly to resolve this issue. But if the Iranians make a horrible decision, and they don't have a great track record in that they generally do make horrible decisions, then I think you'll see the reapplication of American.
Might Victoria, thank you, always appreciate your time. No doubt we'll catch up against the Victoria coach there the Heritage Foundation. That's the situation that most people in this market ultimately think we will avoid, and certainly want to avoid. Stay with us. More Bloomberg surveillance coming up after this. So here's the latest this morning, cud climbing for a fourth consecutive day, back over one hundred dollars a barrel, with
the US and Iran seemingly dead. Luck joining us around the table, Paul Sanki of Sanky Research, Paul going to see you. Have you met Lisa before?
All right, okay, inside, let's.
Go on, We'll move on.
Cool. Before this war started the day before Exxon closed it around one fifty. Exon closed yesterday around one fifty. Why hasn't this war and this supply hammering that we've seen in the last two months, energized the rally in energy names.
Well, the energy names were running hard into this. You know, they're the best performing sector of the year to date, and that you know, very much reversed. So you had tech going down, oil going up, and I think that was important because in many ways, the market was adding terminal value into the oil. So what they were doing is they were buying on the basis that the oil age isn't ending, and you know, you had fundamentally more
long term value. And x x on themselves had come out with their long term energy plan in October around the time BP capitulated, the IA capitulated on the end of the oil age. So Excellon came out and said, actually, we think global oil demand's going to be flat through
twenty fifty. So the market began to think, you know, actually these and of course the AI energy requirement, natural gas requirement, the market began to buy in in a very big way to the idea that the oils were fundamentally worth more because they have a much longer outlook for their.
Products, and so that was bullish.
But of course, when you get into this situation, and this is what we're looking at directly today, and I'll mention in passing that there's also been some profit warnings for Q. One that we saw is to do with inventory values changing massively because of the crisis. So you're going to have some very big headline losses reported by the oils in terms of their working capital in the earning season that's coming up right now. But then what we saw here is that people are typically unwilling to
buy into the oils at a peak price. And what we've seen at times is the ou price will come down and the oils go up, and that's big investors wanting to get into oil, but not wanting to buy when jet fuels two hundred dollars a barrel. But you can see the underlying bid is there.
Now.
Of course it gets more complicated because then we had this huge tech rally, you know, so people were shoving money back into in nvideo or whatever they were. So we didn't get part of that bid either. And I'll leave it to your geniuses to work out why tech was so strong. But I think that the AI theme has remained on course, and particularly the AI capex, and so there is an argument that the AI themes, I mean, all the language from the companies, it is going to
be vast. It is going to be huge, and people wanted to buy back in. But I think over the coming months this is going to unctual need to deterirorate badly. This situation. It already is, but it's nothing to say that it's going to not be deteriorate anything other than deteriorrating over the next two months. We're locked into that. And so I think the market has you know, it's been a great rally, an all time rally by some measures. But I think this is it's going to come back
to us. And I think John, another one of your expert areas is the tea. You know, what we're looking at as the teable and how government finances can really handle this total disaster, And it's going to be difficult before.
We get there.
Though it's easy for people to say oil prices are going to remain structurally higher for the foreseeable future as a result of this, regardless of whether it gets resolved or not.
Why is that not enough to.
Give a boost to some of these oil majors and why aren't we seeing them investing capex?
Yeah, I think that's a good point, and I think it becomes a demand destruction case. So what happened? You know, we have an almost opposite of COVID effect here. But what you saw with COVID is in twenty nineteen world all the A one hit a record high, you structurally lowered it, and you had just fought your way back over six years, five years to be at record highs again. Literally in February twenty six you were at all time
record highs for global oil demand. And I think what you'll see out of this crisis is actually a structural reduction in oil demand as well as a structural increase in the oil price. So I think that's one of the reasons why at this Energy forum we were talking about this this week in case spant Off, the really outstanding CEO of Diamondback, was talking about the fact that the future strips at seventy two dollars for next year
and there's nothing he can do with that. You know, he can't sell into it, he can't draw more on it. It's really another interesting aspect of this crisis, which is the future strip is disincentivizing investment in more oil supply in the way that we need it. And so the companies aren't changing their cap ex plans. The AI guys our Tesla is, but you won't see any in my view, you won't see any public oil company make a major change to their KapS plan on this Q one Onnes's.
We've got about a minute left. Yeah, seem to think this is going to get very bad, and I just want you to spell out why, because there was a degree of comfort the people of God that were a de escalatory path.
Well, the comfort comes from the fact that the tank has only stopped arriving last week. You know, it's a forty day process, and so almost immediately what we've seen is this the inventry numbers have now started to get scary, and it's just starting. But you're not at the stage of just outright crisis pricing. You know, you're not at the stage where Americans, American very low share of their income goes to gasoline three four. You know, it's eight
nine in Germany. It's not that big a price. It's a sticker shock, but it's not really that huge an effect for the average American. Obviously, it's regressive and bad for poor people. So I think that the situation here gets worse simply because it's guaranteed. You know, normally when we're forecasting oil we can be very very wrong for
extraneous reasons. In this case, we can be sure that the next two months is going to be an ongoing absolute disaster, even if you open the straits tomorrow, because it's just locked in by virtue of tanking tankers, and the tankers are all in the wrong places, it probably means it's three months. So it's a very bad situation, and we're looking at where it's flight chains of breaking. We focused on Australia on jet fuel. People are talking about solvents in Japan for chip making. Today you know,
you'll see where the cracks really start to appear. And then finally there's another issue, which is emergency invantries. The first slug is easy to release, the second slug you're going to release it, but you're going to be scared. And then there's a question of can you really release the third slug. So the emergency invantries are probably lower in real actual terms than they appear on your screen, and they appear very low.
And this is quite sober and stuff. Paul sank appreciate your time. Thank you, sir, Paul Sank. You there Sanki Research. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.